Pathbreakers: Raamdeo Agrawal's timeless investing tips for blockbuster market returns

Raamdeo Agrawal, chairman and co-founder, Motilal Oswal Financial Services. Image: Joshua Navalkar

Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services, discovered his passion for the stock market in the early 1980s. “I fell in love with the stock market and realised that this is the place where I want to build my career,” he says in an exclusive interview on Forbes India Pathbreakers. In 1983, with no savings or contacts, Agrawal says he took the plunge, ventured into the world of equity investing, and never looked back.
 

First multibagger

 
Agrawal smiles as he remembers his very first stock bet which earned him 100x returns. He reminisces, “The first multibagger was Vysya Bank in 1991 when the bull run was starting. I bought it at about Rs22/share and in 2-2.5 years, it jumped 100x to around Rs2,000/share. I think I sold at roughly Rs2,200-2,300. That’s how I made the first 100 bagger in the stock market.”
 
Agrawal underlines the importance of learning and starting early as an investor. “My weekend hobby was to read balance sheets. That’s how I built my knowledge base about companies very early. In 1994, I read the balance sheet of Berkshire Hathaway and started going to Omaha to listen to Mr [Warren] Buffet because he was so impressive, and that changed life. I found my investment guru and I learnt a lot from his writings and AGM speeches. After 1993 and 1994, the market exploded. Foreign firms came and the analyst community was formed. I have a good knack for numbers. I was able to figure out production, cost metrics, margin, cash flow position. These things would stick to my head. Then, I intuitively knew how to pick a stock, how to buy something cheap and make money,” the ace investor says.
 

The art of stock picking

 
Agrawal says investing is about two things: Good business and good management. “If you get these two things right, then 90-95 percent of the job is done. My approach is to understand the businessman. The business is known. What is not known is the person behind it. When you meet him, you get to know whether he is a Formula One driver or if he is just another driver or a complete novice. You have to understand the competence of the entrepreneur. How passionate is he? What is his dream? What’s his vision for the company? That’s the part that excites me. When I see what he is planning is not there in the price then that’s where the price value gap is coming. Stock investing is about finding the gap between price and value. Then the game starts. The market is a funny place where you can buy Rs100 thing for Rs10 and sell Rs10 thing for Rs100. Don’t be too reliant on the price for investing. Price is only to see if your investment thesis is above or below the value of the stock,” Agrawal explains.   

Also read: Who are the big sharks of the Indian stock markets?

Top investment themes

Agrawal is very bullish about India’s growth story. “I think private lenders have a very strong banking cycle as economic growth picks up. That appears to be one big area. Insurance and formalisation of savings is a big space. The sectors that have been hit recently, like automotive, are coming back. IT is the largest industry of India in terms of profit pool. Tech is not to be undermined. It has the biggest potential to make money. Right now, there is a disappointment because of the global recession but that will throw up an opportunity to buy some interesting companies in the next one-two years. The India story is building up. Infrastructure, cement, steel, consumer companies, and digital companies. The digital companies were expensive in 2021 and have been beaten out of shape. Some more companies will do an IPO [initial public offering]. I think there are ample opportunities to look at.”
 

Understanding new-age tech companies

Agrawal believes there is a big underlying opportunity to be tapped in this segment. “Some of these companies will become very large. Any internet business will be very consolidatory. For a very large opportunity you will have one or two companies. You will not have fifty or hundred companies the way it used to be. There is a large opportunity. Internet is very young.

Right now, it is about 12-13 years old, but in India it is only 5 years old. We haven’t seen much impact of internet companies yet. As we go forward it will keep evolving. It will also be a big opportunity for online companies that are able to exploit it to their advantage. This is a space from where you will get to see a new set of large companies coming. Very few companies are listed right now. You will get to see a lot of global companies coming. Software companies that will have Indian cost structure but global markets. That’s going to be the real game. Whether it is edtech, fintech, SaaS (Software as a Service) company where the cost structure will be in Bengaluru, but the clients will be all over the world. For a Rs300 crore cost structure you can have a billion-dollar revenue. That kind of magic is going to happen. It’s some time away but digital companies are going to be here and they will be large,” he opines.
 
(This is the first of a two-part series.)